The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said long-running dispute in the Middle East would cause fuel prices to rise in India.
Speaking at the conference in Switzerland late on Tuesday, Malhotra said that although the RBI can withstand short-term shocks, it will step in if inflation gets out of control.
“If the Middle East conflict continues, the government may have to raise fuel prices. Since the government has adopted fiscally prudent policies, it is “only a matter of time" before higher oil prices are passed on more fully,” Malhotra said, as per media reports.
He said it is critical for fiscal and monetary policy to be in sync at this time. The RBI made the decision to wait and observe during its April monetary policy assessment because it was “early days" at the time.
Monetary policy will need to remain flexible and dynamic, added Malhotra. He further said the central banks must exercise caution and adopt a “gradualism" policy in the face of increased volatility, and the RBI is becoming more and more data-driven, taking it session after session.
Interestingly, his comments coincide with the 11th week of the West Asia crisis and a few days after Prime Minister Narendra Modi called on people to avoid needless travel and, whenever feasible, work from home as part of a larger call to protect foreign reserves.
Meanwhile, earlier in the day, the government also increased import duties on gold and silver from 6 percent to 15 percent in an attempt to reduce foreign purchases of the metals and ease the pressure on the country’s foreign exchange reserves.
The higher duties could cut down the demand in India, which is the world’s second-largest consumer of precious metals, and it would also help to stabilize the rupee and lower country’s trade deficit.
